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Investment Grade Bond Research – April 8, 2019

Posted on April 8, 2019

JUNK BONDS SLIGHTLY REGAINED FAVOR AGAINST INVESTMENT-GRADE DEBT in net prices linked to actual trades.  Treasury yields for U.S. Government bonds ticked higher as investors await the release of critical inflation data10-year Treasury note gained 2.7 basis points and the 30-year note rose 0.7 basis points.  Equities settled predominantly higher despite the DOW shedding nearly 100 points following Boeing receiving a downgrade from Bank of America Merrill Lynch and JPMorgan downgrading GE.  S&P +0.04%, DOW -0.48%, NASDAQ +0.15%

ANALYSTS EXPECT FIRST-QUARTER EARNINGS TO BE SUBPAR and decline for the first time in three years.  Morgan Stanley’s chief Equity strategist Michael Wilson anticipates two or more quarters of negative or flat growth, signaling a recession.  U.S. factory orders slipped 0.5 percent in February to mark the fourth decline in the past five-months; durable goods orders alone sank 1.6 percent.  Crude oil soared to five-month highs settling above $64.48 per barrel up 2.2% on anticipations of tighter global supplies amid fighting in Libya and domestically historic floods are battering the Midwest. ADI proprietary index data showed a net yield increment for high-yield versus high-grade bonds.  High-yield edged out high-grade. Among high-yield bonds showing topmost price gains at appreciable volumes traded,  Noble Holding Intl LTD (USD) 6.05% 03/01/2041 made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI INDICES above.) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   CVS Health Corp. 5.05% 3/25/2048 + 0.0%
  BNP Paribas 2.375% 5/21/2020 + 0.1%
–   GE Capital Intl. Funding Co. 4.418% 11/15/2035 -1.3%
Southern Copper Corp.   5.875% 4/23/2045
Walt Disney Co.   2.15% 9/17/2020
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.30% -0.42% 1.70% 4.21% 3.99% 4.51%
Mining 0.07% -0.24% 1.89% 5.05% 5.29% 4.89%
Construction 0.12% -0.07% 2.11% 4.02% 4.22% 4.44%
Manufacturing 0.06% -0.26% 1.63% 3.53% 3.69% 4.02%
Transportion, Communication, Electric/Gas 0.11% -0.30% 2.26% 4.62% 4.80% 5.34%
Wholesale 0.13% -0.22% 1.50% 4.53% 4.54% 3.95%
Retail 0.04% -0.30% 1.79% 3.83% 4.01% 4.51%
Finance, Insurance, Real-Estate 0.06% -0.14% 1.33% 3.45% 3.48% 4.67%
Services 0.06% -0.29% 1.73% 3.62% 3.84% 4.86%
Public Administration 0.01% -0.14% 0.65% 0.96% 0.97% 3.15%
Energy 0.07% -0.26% 1.94% 5.32% 5.48% 5.39%
Total returns (non-annualized) by rating, market weighted.

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New Issues New Issues [Continued]


(None Current 04/08/2019)


Additional Commentary

NEW ISSUANCE WATCH: on 4/05/19 participants welcome a $400MM new corporate-bond offering by
Owl Rock Capital Corp.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 4/5/19, with a net inflow of $2.0B, year-to-date $12.0B flowed into high-yield.
Top Widening Credit Default Swaps (CDS) Top Narrowing Credit Default Swaps (CDS)
Weatherford International LTD (5Y Sen USD XR14)
Hertz Corp. (5Y Sen USD CR14)
Cable & Wireless Communication (5Y Sen USD CR14)
SuperValu Inc. (5Y Sen USD MR14)

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Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

  • Ultimate Software Group, Crossamerica Partners LP, Ryman Healthcare Group

Long-term bond yields are expected to hit a cyclical peak in 2019 given tight fiscal policy and lagging global economies. Europe remains checked by stubbornly low inflationary forces.  Positive effects remained in force:

  • TED spread held below 17 bp (basis points), as of 04/08/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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